IFR Markets ForexWatch Asia Regional Daily Briefing

Reuters Staff

13 Min Read

SYDNEY, May 15 (IFR) - Headlines from Wednesday Night * Juncker says would propose FX policy guidelines if EUR were too strong * ECB's Weidmann asked if Buba has said yes to QE yet says Buba hasn't said yes to anything yet, perhaps QE is not suitable to deal w/problem of low inflation, exch rate target isn't consistent w/independent monetary policy * IMF's Blanchard US debt levels 'reasonable', economic recovery fundamentally very strong, sees 25% probability of deflation in EZ at end of '15 * Germany's Merkel completing regulations for Intl fin'l mkts is getting increasingly difficult * US PPI Final Demand MM Apr 0.60%, f/c 0.20%, 0.50%-prev * US Core PPI Final Demand MM Apr 0.50%, 0.20%, 0.60%-prev * US PPI Final Demand YY Apr 2.10%, f/c 1.70%, 1.40%-prev * US Core PPI Final Demand YY Apr 1.90%, f/c 1.40%, 1.40%-prev * EZ Mar Industrial output -0.1% y/y vs 1.7% prev, 1.0% exp * ECB Mersch: ECB cannot, must not, and will not "save" states - Reuters * ECB readies package of rate cuts and targeted measures - Reuters * German Apr final CPI 1.3% y/y vs 1.3% prev/exp * German Apr final HICP 1.1% y/y vs 1.1% prev/exp * Swiss May ZEW investor sentiment 7.4 vs 7.0 prev, 10.0 exp * UK Mar ILO Jobless 6.8% vs 6.9% prev, 6.8% exp * UK Mar Average earnings 1.3% vs 1.4% prev, 1.5% exp * BoE QIR- Slack remains, range of views remain - IFR * ECB Praet says will only consider QE measures if inflation develops significantly worse than we expect; we are preparing a series of measures, such a targeted long-term refinancing operation -paper Themes from Wednesday * One may as well have turned off their computer screen around 1100GMT last night because all the activity happened in early London and little of note thereafter. * You could have been excused for thinking that it was going to be a big night ahead given the activity seen in early London but for some reason it died a natural death in NY. The action in London was hard to absorb because it was dollar led. Indeed the biggest moves were in the crosses with various factors at play. CitiFXWire summed up the early London session impressively saying it was "like watching a Cirque du Soleil show with myriads of moving parts all intricately linked together." * Asia had closed on modest flows with AUD the star turn whilst "angry" intervention from the BOK had Londoner's on the lookout for reserve recycling. * The word in Asia was that there was semi official support in EUR/JPY around 139.90. That was reason enough for Europe to target the stops below which was easily accomplished and with no semi official support in sight. EUR/JPY tanked to 139.70 and there was to be no comeback. EUR/JPY eventually bottomed out at 139.46 before closing in NY at 139.76. * USD/JPY fell to 101.71 as a consequence where it found rock solid support despite numerous attempts at said level throughout the evening. USD/JPY was rebuked on each attempt but the bounce(s) back were anaemic. USD/JPY got back to 101.94 at one stage but thereafter basically kept a 101.70 handle. Another slide in US Treasury yields overnight (which started in late Asia) certainly kept the pressure on the downside in USD/JPY. * AUD/USD as it had threatened to do all day in Asia finally broke through 94 cents late in the session. It found the going tough above 0.9400 with three attempts above the figure finally forcing a "recoil" in NY which saw AUD/USD peel back to 0.9366. AUD/USD closed in NY at 0.9378. Carry trades got most of the blame for the AUD move higher yesterday along with numerous mentions of reserve adjustments (read BOK). AUD/NZD was very interesting breaking above resistance around 1.0860 (stop losses) to touch 1.0880 only to collapse and make fresh session lows at 1.0814 as I write. EUR/AUD which had taken out the downside stops at 1.4630 and 1.4600 failed to go on with it reaching 1.4575 before rebounding in NY to 1.4620 (last). It was an odd performance for everyone's now favorite "sell." * The main event of the evening was of course the BoE inflation report. Whilst the report was viewed as 'neutral" and led to GBP selling, the move lower had started prior to the inflation report. GBP/USD made it to 1.6875 in late Asia only to collapse upon itself in early London. Selling started ahead of the ILO jobs data prompted by a move to lock in profits on EUR/GBP shorts. The weekly earnings growth data segment was OK but not good enough for a long GBP market. GBP/USD collapsed from around 1.6860 to 1.6825ish whilst EUR/GBP went from 0.8130ish to 0.8150. The "neutral" inflation report was not expected and GBP/USD took another leg down this time to 1.6760 and never really recovered all evening as stale longs took their medicine. GBP/USD closed in NY at 1.6766. EUR/GBP hit 0.8182 in the inflation report short covering spree before drifting sideways for the rest of the night with a 0.8170 handle. * EUR/USD made it to 1.3731 in late Asia (ECB Praet comments) but despite all the chatter of supposed central bank buying (BOK recycling reserves) the single currency could not go on with it. EUR/USD drifted sideways for the rest of the night within a 1.3705-25ish range - last in NY at 1.3714. The central bank buying may simply have been absorbed by the EUR/JPY sellers. * Wall Street broke its 5-day winning streak falling 101 points or 0.6%. The S&P500 fell 0.45% and the NASDAQ fell 0.7%. The Russell 2000 had the biggest damage falling 1.5% as small caps and momentum stocks (tech/internet etc) showed the most pain. Most of the losses came very late in the day. * Weak corporate updates, especially in the media sector, caused European shares to pause on Wednesday after a two month-rally that has propelled many regional indexes to multi-year highs. The FTSEurofirst 300 closed flat at 1,368 points after touching 1,369 points earlier in the session, a high not seen since May 2008. European stocks have been lifted by expectations the ECB will take new steps at the June 5 meeting to keep inflation from staying too low. The FTSEurofirst 300 rose some 7% from lows in March. Reuters News * The collapse in bond yields picked up steam overnight. The UST 10-yr yield traded to 2.52% at one stage before closing in NY at 2.55% down 6bps on the day. The 30-yr UST yield fell 7bps to 3.38% while the 2-yr yield fell 2bps to 0.37%. The move lower in EZ and Gilt yields got the blame. The "neutral" inflation report from the BOE sent 10-yr Gilts 10bps lower from their intraday high to close at 2.585%. Buba "supposed" support for a June 5 easing saw EZ yields mostly lower - France 10-yr yield down 6bps to 1.81%. * Nickel prices fell more than 4% as some investors saw the market's Indonesian supply problem as fully priced in, given the metal is trading up nearly 50% year to date. LME nickel ended down 4.5% at $20,050 a tonne, after rising in the last six trading sessions. Nickel hit its highest level since Feb 2012 at $21,625 a tonne on Tuesday. The copper benchmark ended up 1.1% to $6,920 a tonne, having earlier touched their highest since early March at $6,940 a tonne. Iron ore closed up 50 cents at 103.50 a tonne. Reuters News * Spot gold rose 1.0% tracking strong gains in platinum and palladium and helped along by base metal gains. Spot gold closed in NY at 1306.30 an ounce. * Global oil prices rose on Wednesday as a draw on U.S. crude stocks at the Cushing, Oklahoma, contract delivery point and gasoline stocks pushed Brent and U.S. crude to three week highs. U.S. crude stocks rose overall last week but inventories at the Cushing, Oklahoma, delivery point fell by 592k barrels (EIA). * US Dollar index closed down 0.1% to 80.06. The VIX index rose 0.3% to 12.17. Wrap-up * There was a lot to digest in the early London session with various cross FX flows pushing and pulling on major currencies. Once the dust had settle NY showed little interest other than correcting earlier moves. The much hyped BOE inflation reported disappointed and sent UK yields and GBP hurtling lower. EZ yields fell in line helped by the previous days Bundesbank comments. US Treasury yields as a consequence had nowhere to go but down. USD/JPY remained heavy all night but could not break below 101.70. EUR/USD was stagnant but safely held above 1.37. GBP/USD tanked below 1.68 and there was to be no comeback from a stubbornly long Sterling market. * Today's main event will be US CPI and initial unemployment claims. They will be followed up by Empire State manufacturing data and NABH Housing market index - all important pieces to the Fed's monetary puzzle. In Asia focus will remain on USD/JPY as ever shrinking UST-JGB spreads are warning sign for JPY shorts. ASIAN CURRENCY OUTLOOK * USD/AXJ is set to open mixed from yesterdays Asian closing levels. Only IDR NDFs continued to press lower while the others stuck to the script with the US Dollar index closing flat. Volumes of cross activity confused trading in the majors with the US Dollar index finishing the night flat. GBP longs were pared across the board while EUR crosses remained heavy. AUD/USD struck headwinds above 94 cents but topside still in play. BOK set the cat amongst the pigeons in Asia as he has threatened to do for some time. It was not a good look from a G20 economy. The BOK in time will be proven right but if you want a seat at the main table that is not the way to go about it. * USD/KRW traded a modest 1021.3-1030 range in Asia on Wednesday; last at 1027.9. The Kospi closed up 1.4%. Overnight implieds traded a 1028 -1030.5 range; last in NY 1029.5/1030.5. * USD/SGD traded a modest 1.2485-1.2521 range in Asia on Wednesday; last at 1.2486. The Straits Times closed up 1.1%. * USD/MYR traded a 3.2175-3.2355 range in Asia on Wednesday; last at 3.2190. The KLSE index closed up 0.7%. Overnight the implieds traded a 3.2230-3.2330 range; last in NY at 3.2270/85. * USD/IDR traded an 11450-11500 range in Asia on Wednesday; last at 11450. The Jakarta Interbank Spot Dollar Rate (JISDOR) was set at 11487. The IDX Composite closed up 1.4%. Overnight the implieds traded 11380-11440 range; last in NY at 11370/11390. * USD/PHP traded a 43.53-75 range in Asia on Wednesday; last at 43.55. The PSE index closed up 0.4%. Overnight the implieds traded a 43.52-63 range; last in NY at 43.56-58. * USD/THB traded a 32.40-615 range in Asia on Wednesday; last at 32.425. The Set closed up 1.5%. * USD/TWD traded a 30.138-19 range in Asia on Wednesday; last at 30.14. The Taiex closed up 0.65%. Overnight the implieds traded a 30.10-125 range; last in NY at 30.12/13. * USD/CNY was set in Asia on Wednesday at 6.1653 slightly higher than the previous 6.1636 fix. The OTC market traded a 6.2230-6.2338 range; last at 6.2289. USD/CNH last at 6.2272 - range 6.2270-6.2405. The 1-yr NDF was last quoted in Asia at 6.2340/6.2360. The Shanghai Composite closed down 0.1%. Overnight the 1-yr NDF traded at 6.2330; last in NY at 6.2350/65. * USD/INR India's FX market was closed on Wednesday. The Sensex index closed down 0.14%. Overnight the implieds traded a 59.70-77 range; last 59.77-80. Economic Data Releases (GMT) 14 May 23:50 JP GDP QQ Annualised 14 May 23:50 JP GDP private consumption 14 May 23:50 JP GDP QQ Capital Expend 15 May 01:30 AU New Motor Vehicle Sales 15 May 02:00 NZ OBEGAL Forecast 15 May 02:00 NZ Net Debt Forecast 15 May 02:00 NZ Budget Cash Balance 15 May 05:00 JP Consumer Confid. Index 15 May 05:00 SG Retail Sales 15 May 06:30 IN WPI